Airports of Thailand

Airports of Thailand Plc (AOT) 

 

Investment thesis

In our view, the expectation of strong earnings growth through 1Q16 to be ushered in by Thailand’s high season for tourism should be a near-term catalyst for AOT’s share price. Moreover, the strong core earnings growth profile of 20% CAGR during FY15-17, against a core profit growth of 9% CAGR for the broad SET, should support the share price going forward. AOT’s current valuation is pretty—the stock trades at an end-September 2016 PER of 25.5x, a discount to the regional average of 26.8x and a forward PBV/ROE of 0.24, a discount to the regional mean of 0.28x. 

Robust traffic expansion to drive YoY profit growth in Jul-Sep

We expect AOT to post a 4Q15 (Jul-Sep) net profit of Bt3,077m, up 35% YoY but down 25% QoQ. Stripping out an assumed FX loss of Bt45m and Bt80m impairment loss of assets, 4Q15 core profit would be Bt3,202m, up 51% YoY but down 22% QoQ. The drivers for the YoY core earnings growth were: 1) greater passenger numbers, 2) higher aircraft movement, 3) higher concession revenue, and 4) lower interest expenses. However, the QoQ core profit contraction was due to higher personnel expenses, as the firm normally books staff bonuses in the fourth quarter of each fiscal year. 

It is worth noting that air traffic numbers expanded QoQ in 4Q15, driven by improved demand for travel to and within Thailand. AOT’s total passenger numbers for 4Q15 grew 24% YoY and 3% QoQ to 26.6m, while total aircraft movements rose 23% YoY and 2% QoQ to 179,225 flights. Moreover, concession revenue is also expected to surge YoY and QoQ in tandem with a rebound in international passenger numbers (up 24% YoY and 1% QoQ to 15.0m in 4Q15).    

Strong earnings growth momentum expected for 1Q16 (Oct-Dec)

As demand for travel to and within Thailand has continued to rebound to date in 2015, we therefore expect AOT to post a strong YoY air traffic growth figure in the Oct-Dec quarter. In addition, the Oct-Dec quarter is typically high season for Thai tourism. Given that, air traffic numbers are also expected to rise QoQ. Those numbers, reported by AOT, have expanded strongly since Oct to date—its statistics for 1-21 November revealed further increases—total passenger numbers expanded 12% YoY, while aircraft movements gained 13% YoY. Note that total passenger numbers increased 12% YoY and aircraft movement intensified 14% YoY in October. We therefore expect strong core profit growth (both YoY and QoQ) to be sustained through the Oct-Dec quarter (1Q16).